How to Know When It’s Time to Pivot Your Startup

Desiree: Hey everybody, I'm Desiree Echevarria, the Senior Content Marketer at Close. Today, I’m once again joined by Steli Efti, the founder and CEO of Close, and also the founder of several past startups, including Super Cool School, which might be one of the best startup names ever, SwipeGood, Elastic Sales, and Close.io, before it became Close.com. This brings us to our topic today: pivots. Pivoting your startup idea, and Steli is clearly no stranger to the pivot, given that laundry list of startups that are no longer with us—may they rest in peace.

Desiree: I think pivots are becoming a hot topic once again. I've seen some really great articles recently written about pivots, and I was reminded of some of my favorite pivots in history. For example, YouTube used to be a video dating service, which sounds like a nightmare to me, but that’s how they started. Slack started out as a video game. Shopify began as a snowboarding store—kind of random. Netflix, probably one of the biggest pivots, happened right before our very eyes, pivoting from a DVD rental company to a streaming and distribution service. So, is it safe to say, Steli, that most startups will have at least one major pivot at some point?

Steli: Yes, I think so. I was just pondering whether it needs to be classified as “most successful startups will have at least one pivot,” because there are definitely a lot of startups that never pivot and never deviate from their original plan. I’m sure there are some successes to be found within that group, but I’d be surprised if it’s more than those that have to considerably change their original plans to find success.

Desiree: There’s a bit of a debate over the definition of a pivot versus completely throwing out your idea and starting over from scratch as a new business, and you’ve done both. I don’t want to get too bogged down in semantics, though. I think the point is recognizing when something’s not working and letting that realization inform your next move. So, can you walk me through the evolution of all your startups, including closures and pivots—your moves from one startup to another?

Steli: I don’t know if I can cover all of that, or if we have enough time, because even with my first startup in Silicon Valley, after moving from Europe, there were so many changes. The original idea was to create an open, community-based website, sort of like Wikipedia. Then, Facebook launched its platform...

Steli: This was eons ago, back in 2007. Most of you probably won't remember this, but Facebook was a big deal. They opened up to people beyond just those on college campuses with a university email address, and then they allowed developers to build apps on their platform, offering crazy distribution opportunities. This was before the iPhone and secure smartphones, just to give you some context.

So, I moved from an open-source website to an app built on the Facebook social network. Then, I got contacted by an executive at Google who said, “Hey, I think it would be a really cool tool if you developed that, and we could have our engineers use this app that you've built on Facebook.”

Steli: So, we pivoted to the enterprise. I could go on for quite some time about all the switches we made and who we focused on. I’ve had my fair share of switches, pivots, and complete reboots—starting over as a totally different company with a different brand, product, and customer base, as well as smaller deviations, like focusing on a different audience while keeping the same product. We went from a social version of this product to an enterprise version and later to a smartphone version.

Steli: To what I said before, it’s not even the same product or customer base anymore. I’ve done it all—all versions of pivots. Just as a little anecdote, when we went through Y Combinator, we originally started as a social giving app that would allow you to round up your purchases to the nearest dollar and donate that change to a charity of your choice.

When we pivoted from that idea to Elastic Sales, I remember having a walk with Paul Graham, the founder of Y Combinator, discussing our motivations and the early traction we’d seen with Elastic Sales. Although he was excited about the idea and how we arrived there, he eventually corrected me and said, “You know, it’s not really a pivot what you’ve done. What you’ve done is a jump.” To pivot, one of your feet still has to be at the same point on the ground. This is not qualifying as a pivot; this is a completely different thing.

I remember that moment clearly. The term "pivot" can be overused, but I’ve definitely gone through every version of it.

Desiree: I was doing a little research on you and heard that your first startup idea took way too long to develop. You spent a few years trying to make that idea work, and when you finally came to the conclusion that it just wasn’t going to happen, it felt like a weight was lifted off your shoulders. That realization freed you up to return to the drawing board with fresh eyes and new creativity. Then, suddenly, you came up with a new idea, which you moved forward with. Can you talk about how that experience helped you in the future?

Steli: Yeah, this actually relates to the lesson I learned with my prior startup, Super Cool School, which really helped with the experience we went through with Swipe Good and eventually becoming Elastic Sales and then Close. With my first startup in the Valley, I did exactly what you said: I was just banging my head against the wall, thinking that part of success and being a good entrepreneur meant being so hard-headed that no wall could withstand my will.

Steli: That’s kind of an inspiring and romantic image of the hero that just walks through all the walls. But in reality—

Desiree: You never give up.

Steli: Yeah, you never give up. But in reality, as a founder, you need to find the door with your eyes versus just running with your head against the wall because most walls will be harder than your head in the real world, right? You can’t just walk through walls; it’s not that easy. You have to be clever.

Steli: You have to use all of the devices of your internal and external resources—using your eyes, your hands, your feet, and external tools to get through what you want to get through is all part of the game. You can’t just be running through everything in a straight line.

Steli: And so, with that first startup, I was just using harder work, which usually meant more hours of work. I was working from 9 a.m. to 11 p.m. or midnight, seven days a week, no breaks, no social life, no vacations—just longer and longer hours, feeling more miserable. I felt that was part of the game, part of what would ultimately bring me success. For that company, it was impossible for me to accept defeat psychologically and emotionally.

Steli: It was very hard for me to say, "This isn’t working, and I have to stop." But finally, when there was no more money, no more resources, no more energy, and no more motivation, I had a meeting with the entire team and proposed a vacation. I said, “Alright, we’ll take a break. Right now, we’re all broke financially. We all have to take care of the bare minimum—being able to live, pay for rent, and for food. So, we’ll take a break from this startup. Everyone gets to spend the next three months just landing on their feet and taking care of their situation. In three months, we’ll meet again and decide: do we want to do another run at this startup, or do we want to treat this as a side business?”

Steli: What do we do with this? The truth was, that felt easier to announce. People also felt better about it. They thought, “Yeah, okay, we’ll take a break, and then we’ll come back and see what we do with this.” But within a week, everybody knew nobody was coming back. This was over; this startup was dead. It was just very hard to admit that at that moment. So, saying, "Let’s take a break and see how we feel in a couple of months" was the way out. And then I realized very quickly, "Okay, this thing is dead."

Steli: I didn’t have the motivation or passion anymore, we didn’t have the resources, and I had to move on. Fast forward to when we started with SwipeGood: a lot of the lessons I should have learned with my prior startup but hadn’t applied—once the weight was off my shoulders from the prior company—actually internalized.

Steli: It was like an "aha" moment, like waking up from a bad dream. I was like, "Oh, here’s one, two, three, four, five—here are all the things I was doing wrong, and here’s the remedy to these things." It became so clear to me how to run a startup, what I did wrong, and what I should have learned.

Steli: So, when Anthony and I started working on SwipeGood and eventually Tom joined us, there were a lot of lessons learned—years of lessons acquired but not yet internalized—that I was now ready to put into practice. We had a great kickstart with SwipeGood. We built the product very quickly and gained some initial traction quickly. We were accepted into Y Combinator fairly quickly, got more interest from angel investors, and secured some big partnerships.

Steli: Growth was up and to the right—30% week over week, which gave us a nice little hockey-stick chart. On demo day at Y Combinator, after three months, we even put our growth chart on our t-shirts, and we were talking to investors arrogantly and confidently, saying, "Hey, when I first talked to you, the dot was here on the chart. Now it’s up here. It’s up to you—invest now or wait a year. We’re going to the moon." We raised a very successful round at the time, a large round. Everything was going great—until it wasn’t anymore. After the first four or five months of growth, all the easy, low-hanging fruit was gone, and our model wasn’t working as well as it did in the beginning.

Steli: And what did I do? I did the same thing I did before. I started getting tense, working more hours, trying to force success—trying to push growth back up and to the right. But what did my two co-founders, Anthony and Tom, do? They just lost interest. They started saying, "This is lame, it’s not growing, it’s not going well. What else could we be doing?" I started resenting them for that. I remember there was a period of a couple of weeks where, every day, I had a 24/7 loop in my head of fighting with them in my mind, thinking, "These people don’t know what entrepreneurship is."

Steli: Entrepreneurship isn’t just easy. You have to go through difficult times, persevere, and work really hard to make it happen. I was really upset with them. They were messing around, playing with different ideas—"Maybe we should build some other app," they’d say. And I thought, "Are these people crazy? I’m going to kill them. You can’t just build another app."

Steli: Until, at a certain moment, I had an "aha" experience. I realized, "Wait a second, what I’m doing now is exactly what I did for five years with my prior startup, and it never worked. I just kept working harder and trying to force the issue, and I’ve never succeeded with that. Maybe it’s not me who’s right and my two co-founders are stupid—maybe they’re right, and I’m the stupid one."

Steli: Maybe they’re right, and I’m stupid. Maybe they’re more open-minded and flexible, and I’m hard-headed—absolutely committed to this thing, no matter if it’s working or not, no matter the reality of the situation. I was trying to hold on to my idea of it. Maybe I should join their team instead of forcing them to think and act like me.

Steli: I decided to become more open-minded and thought, maybe we should try something different for a little while. We had tried a couple of things, and none of them were working. We were becoming more tense, and working together was less and less fun. We were going down a bad road.

Steli: So, I proposed the idea: "Hey, okay, SwipeGood isn’t going well, but there are enough things happening and enough plans in place for the next couple of months. Let’s reduce our workload from 100% SwipeGood to 50%. We’ll maintain what’s happening now, and then let’s take the next three months, travel to three new cities, rent out three different Airbnbs, and just play with new ideas."

Steli: Let’s get creative. Let’s get out of this office that we’ve been living, sleeping, and working in all day long, seven days a week. Let’s take a creative break from all of this. We’ll keep maintaining SwipeGood, and everyone can pitch an idea. We’ll try three different ideas in three different cities, and then we’ll come back and decide what we want to do. Do we want to return to 100% focus on SwipeGood, or are we more excited about a new or different idea for the future?

Steli: That was the pitch. We got excited about it, but it never got that far. We never made it to three cities with three different ideas because, before we even left for the first trip, I had the idea for Elastic Sales—an outsourced sales team on demand for B2B SaaS companies. You could go online and say, "Spin me up a couple of sales reps," like servers on AWS from Amazon. You could scale a sales force up or down, try different ideas, have them pitch different things, etc.

Steli: When I had that idea, Tom and Anthony got really excited about it and started executing immediately. I was a bit more hesitant at first. We might talk about this in a future episode, but eventually, we started working on Elastic Sales.

Steli: We got a good amount of traction. On our first stop, which I think was in Austin, Texas, we already had a couple of startups that wanted to use our MVP. We started doing sales campaigns, charging customers, building a pipeline, and working on the first version of the software that eventually became Close. By the time we were back, we had some revenue growth with an MVP and some exciting responses and insights from the market.

Steli: That’s when the meeting at Y Combinator happened with Paul Graham, and I told him about this “pivot” we were thinking about, and he was like, “All right, let’s go.” So, the main thing isn’t booking Airbnb, traveling to cities, or any of that.

Steli: I think the core point is having an open and flexible mind—being able to admit when something isn’t working, and when you’re drained of creativity, energy, and motivation. Over the past 20 years, a lot of founders have asked me, “Steli, should I keep going with this thing? We have some traction, but not enough. When is the right moment to decide to kill it or not?”

Steli: It’s hard to give a generic answer, but what’s always true is this: If your energy, motivation, and belief aren’t at a super high level every day, then that’s a sign. Maybe in the beginning, you have 80% conviction and 20% doubt. You might worry, “Maybe this won’t work out.” But when that ratio flips—like it did for me with my first startup—where 80% of the time you’re drained, worried, and fearful, and only 20% of the time you have a meeting or something that energizes you, that’s not enough. You won’t have the internal energy to do the work necessary to make a startup successful.

Steli: I often tell people, if you’re not pumped and your internal batteries aren’t filling up with enthusiasm for this every day, it’s time to move on. No matter what the traction is, you won’t have the energy to make something really happen. You have to be honest with yourself, which is difficult, but you also need a certain level of flexibility and open-mindedness. You can’t just decide, “This is the idea,” and think you’ll make it happen by pure will, force, and dedication.

Steli: All those things are important, but they’re not the only things that matter.

Desiree: It sounds like you were reluctant to get to the point that your co-founders, Anthony and Tom, reached first, which was, “We’re sick of this idea; we want a new idea.” And that kind of happened again later, right? You started Elastic Sales, saw some traction with it—it was more of a sales-as-a-service business.

Desiree: But while servicing all of these Silicon Valley startups, you built an internal software for it. It was your own CRM because you weren’t happy with any of the other CRMs on the market.

Desiree: So, you decided, “If I have to sell all day for these startups, I don’t want to use this bad software—I want to use something really good. Let’s build something for us.” So, the product didn’t have a name yet; it was just your “superstar secret sauce CRM.” And people at your company started showing it off, sort of bragging about it to other Silicon Valley founders and salespeople.

Desiree: And they’re like, “Hey, look at this tool we have. You don’t get to use this, but we do. It’s so slick. It’s so cool.” Suddenly, that accidentally creates a demand you didn’t expect, with people saying, “I want that CRM. I want the secret sauce CRM they have over at Elastic.” People start chirping in your ear at that point, like, “Hey, should we sell the CRM instead of being a services business?” But you were reluctant. Can you talk to me about that?

Steli: So, usually founders lean on one end of the spectrum. Either they’re too trigger-happy on changing their plans and ideas, often because some investor or outside influence tells them, “Hey, you know what you should do? You should do this totally different thing.” They hop from idea to idea without anyone firmly grasping the wheel and directing the company’s future. That wasn’t my problem as a founder.

Steli: I had the opposite issue: I’m so committed and dedicated that I won’t switch just because it’s hard. I’m not going to let go or give up on something just because it isn’t working immediately. In this case, though, it was a different reason why I was reluctant to change. We were running this sort of agency of outsourced business, which made it very complicated to scale Salesforce.

Steli: We were doing sales for so many different companies, running various campaigns, hiring people, onboarding, training them—a lot of moving parts and a lot of humans involved. During that entire time, I was trying to see if I could fundraise to scale that even further. When we first started, we knew we would build software, and we had a vague idea that the software might one day be our secret sauce—the thing that would help us scale and outcompete our competitors. But we didn’t have much more than that, aside from some core ideas I had about why other CRMs sucked and what we needed to do from day one to make ours better.

Steli: For example, having calling embedded in the CRM so I could make and receive calls directly within the CRM without needing other software. That was one of the innovations we brought to the table, one of the things I demanded as an end user. There were a few other features like that. It took us about a year of iterating on the software, growing, and slowly developing a real point of view—what makes great sales software, what doesn’t, and what exactly we were building.

Steli: Slowly but surely, internal excitement for the product grew, just as some of our clients’ excitement grew for the software we were using. We started thinking, “Maybe we have something special here. Maybe the future of the business won’t be the outsourced sales part but the software we’ve developed.” But I was overwhelmed, overworked, and drowning in all the projects I was trying to manage—clients, campaigns, and everything else going on.

Steli: And then Phil—who still runs product and engineering at Close and was there in the founding days—started pushing me, saying, “We really should launch the software as a separate product, as a SaaS product, and we should do it soon. It’s great. There’s no reason to waste time and wait for some ideal future moment. We should do it now.”

Steli: I resisted it mainly because I didn’t want to—like, the last thing I wanted to do was start a second company. I just felt the timing wasn’t right because I was overwhelmed, with too much work, too many things going on. I thought, "I don’t have it in me to now launch a separate thing and run two businesses." So, I would typically tell Phil, “Yes, I kind of agree, but right now is not the time.”

Steli: But he kept bringing it up at lunches, dinners, breakfasts, coffee meetings, stand-up meetings—any opportunity, really. Phil kept saying, “Another client wants the software. I really think we should launch it.” I remember once going to the bathroom, and he was there too, pitching me again that we should launch the CRM right now.

Desiree: That’s such a Hollywood moment.

Steli: Yeah, and for an engineer, he soaked up too much sales knowledge too quickly—it became very dangerous. He was persistent. I always say, the person with the highest level of clarity usually wins. I was less clear that I didn’t want to launch the product than he was clear that it had to be launched right now. So, he just kept chipping away at me until one day, I lost it and said, “Alright, take five people, go into that office, and in three months, launch the product. I don’t want to hear anything about it. I’ll be running this other side of the business—launch the product, and we’ll see how it goes.”

Steli: He turned around, grabbed the engineering team, grabbed one non-engineer from our team—Nick Persico, who is still with the company today—and said, “Alright, Nick, you do the landing page, set up emails, a blog, support, and sales. You’ll be the customer-facing person.” And then, they had to reboot Close as an internal piece of software to make it an external product.

Steli: As a simple example, there was no way for someone to sign up and create an account on a website. When we hired a new rep, the engineer would manually enter their name and create an account for them. Some of the simplest things didn’t exist because we weren’t a public-facing product.

Steli: They had to rebuild a bunch of components of Close, fixing things they thought were lame about it. I mean, we spent a morning putting together a landing page. The name "Close.io"? I don’t even remember being involved in that. I don’t know who came up with it or who picked the domain. It all happened in a little bubble while I was managing the 40-plus person team.

Desiree: That’s amazing.

Steli: Then we launched. I was writing articles for a bunch of big tech outlets at the time, so we had amassed a small audience and reputation in Silicon Valley. I had a big list of people who knew me as a sales expert and knew we were doing cool things with sales.

Steli: So, we emailed a bunch of people, and I blogged or posted a couple of articles on important outlets to kick things off. We launched in January 2013, and it was an excellent decision to launch the product when we did. I wish we had done it even earlier. Phil was absolutely right, and I was absolutely wrong. Left to my own devices, who knows if or when I would have ever launched our internal CRM. So, all the glory goes to others in the company.

Steli: But the reason I was reluctant at the time wasn’t the product. I knew we had something special and that it could be the future. It was just that I was overwhelmed with running one side of the business and didn’t think I could handle it. And then, I didn’t have to—the team decided they didn’t need me. They said, “You keep doing what you’re doing; we’ll do this.” And they did it very successfully.

Desiree: And Phil is still here—he’s your VP of Engineering, right?

Desiree: Yeah, he’s still here making decisions. It was a hell of a risk for him to keep badgering the CEO constantly. I think there are a few lessons here. Number one: if it’s a great idea, be persistent. And number two: if you’re a CEO feeling overwhelmed, get out of the way and let others prove you wrong. There’s a certain amount of humility you learn over time with that.

Desiree: So, what do you tell founders who are reluctant to pivot, no matter the reason? Because pivoting can be hard to swallow for founders—it’s like the devil you know versus the devil you don’t, and you don’t know which one will be worse. Sometimes, that startup feels like their baby. What pep talk do you give to founders who are reluctant to pivot or evolve their business?

Steli: Well, first of all, I tell them that your startup isn’t your baby. It really isn’t. You need to be more pragmatic about things. Yes, you want to be dedicated, focused, and serious, but you also have to realize you need to be flexible and open-minded. Ultimately, building a business is a dance between many parties.

Steli: This isn’t something you can just make happen in a lab. It’s a partnership between you and your customers. Often, it’s not really a partnership—they’re the bosses, and you are serving them.

Steli: There’s an old saying that’s very true: no business plan survives first contact with reality. When you go out into the real world and build something, things will constantly evolve and change. That’s just reality. You have to be adaptable. It’s not the strongest or biggest that wins, but the most adaptable that survives—in nature and in business. Adaptability requires a certain level of flexibility in your thinking.

Steli: When founders are reluctant to pivot because of internal reasons like, “We’re just about to close a big partnership” or “We just invested so much time in this feature,” I tell them that it doesn’t matter. What is the world telling you? What is life telling you? Life never lies. Are you really seeing a huge uptick in users or customers? Are deals closing, and is money being wired? Or is it wishful thinking?

Steli: If it’s wishful thinking, you have to decide: do you want to be a real business owner and build something real, or do you want to daydream and be a founder as a hobby? If it’s a hobby, do it on the side and make your main income somewhere else. But if it’s supposed to be a real business, and the market is telling you no, you have to be open-minded and look for other opportunities to serve customers and find success.

Steli: So, I tell founders this isn’t about you as much as you think. You have to find the balance between being dedicated but also pragmatic and open-minded.

Desiree: I love that. I think that’s advice a lot of people need to hear. Let’s pivot out of here, Steli. Thank you once again for joining me and sharing your stories. Bye, everybody.

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